After treasury bills, the next lowest risk category investment option is the Certificate of Deposit (CD). These are issued by scheduled commercial banks and a select range of financial institutions. In India, regional rural banks and local area banks are not eligible to issue CDs.
- Persons, associations, companies… etc are eligible to invest in CDs
- Minimum lock in period in case of scheduled commercial banks is 15 days and maximum is up to one year. In case of financial institutions it is between 1 and 3 years.
- Banks are not authorised to give loans against CDs
- Minimum amount you can invest in CDs is one lakh and above that you can invest in multiples of one lakh.
- Non-Resident Indians (NRIs) can invest in CDs, these are non-repatriable. CDs cannot be sold to another NRI in a secondary market.
- CD is a negotiable promissory note, secure and short term in nature.
- CD is issued at a lower price to the original value, the discount rate being negotiated between the insurer and the investor.
- Scheduled commercial banks and financial institutions are not eligible to buy back their CDs prior to the maturity period.
Even though certificate of deposit offers low interest rate to the investors they are risk free and a good place to invest for a Risk averse Person.
Recommended Read : Guidelines for CD investment in India
